USD/CAD trims a part of intraday gains, up little around 1.2600 mark

• A strong intraday rally in oil prices underpinned the loonie and exerted some pressure on USD/CAD.
• The upbeat US economic outlook continued lending some support to the USD and helped limit losses.
• A sustained move beyond the 1.2625-30 region will set the stage for strong near-term gains for the pair.

The USD/CAD pair retreated over 30-40 pips from daily swing highs, albeit has still managed to trade with modest gains just below the 1.2600 mark.

The pair struggled to capitalize on its intraday positive move and started retreating from the 1.2625-30 supply zone, or two-week tops touched last Thursday. Oil prices rallied over 3% intraday on reports that Russia is in favour of rolling over the OPEC+ oil production from April to May. This, in turn, provided a goodish lift to the commodity-linked loonie and prompted some fresh selling around the USD/CAD pair.

On the other hand, the US dollar was seen consolidating its recent strong gains to four-month tops amid a softer tone surrounding the US Treasury bond yields. This was seen as another factor that collaborated to the USD/CAD pair’s intraday slide. That said, the downside remains cushioned, at least for the time being, amid growing optimism over the US economic recovery from the pandemic, which should continue to underpin the greenback.

Investors have been betting for a relatively faster US economic recovery amid the impressive pace of coronavirus vaccinations and the passage of a massive stimulus package. In fact, US President Joe Biden last Thursday made an ambitious pledge of administering 200 million vaccine shots in 100 days. Further fueling the expectations were speculations for an additional $3.0 trillion infrastructure plan from the US.

In the absence of any major market-moving economic releases, either from the US or Canada, it will be prudent to wait for a strong follow-through selling before positioning for any further decline. Conversely, a sustained move beyond the 1.2625-30 region will set the stage for additional gains. The USD/CAD pair might then surpass the 1.2700 mark and aim to test the next major hurdle near the 1.2735-40 supply zone.

Technical levels to watch